Increased Lightning

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What's going on?

Tesla’s stock accelerated 10% late on Wednesday as the eccentric electrician reported a surprise return to profit in its third quarter.

What does this mean?

On Monday, Tesla announced it was bringing forward its earnings report, which had been expected next week. Last time the automaker pulled this stunt, it reported a profit – so investors putting two and two together caused the stock to jump 13% in anticipation of good news.

And Tesla didn’t disappoint: it drove home a quarterly profit for only the third time in its 15-year history, and promised it would repeat the trick next quarter too – possibly helped by raising the price of its new Model 3 sedan by $1,000.

Why should I care?

For markets: A fork in the road.

Tesla’s journey so far this year has been riddled with bumps and potholes. Bump: competition crowding Tesla’s route – from big names like Ford to British vacuum maker Dyson, which plans to have its own electric vehicles hit the tarmac by 2021. Pothole: in September, CEO Elon Musk agreed to step down as the company’s chairman, thanks to his out-of-control “Twitter fingers”. Investors were also worried that Tesla would miss its targets and run out of money. Now, the company’s gear shift appears to have catalytically converted one its staunchest critics. Having previously bet that Tesla’s stock price would decline, it’s made a U-turn and actually bought shares.

The bigger picture: Hope springs eternal, but reality is sacred.

Stock prices tend to rise and fall based on investors’ predictions of how much money a company will generate in the future. When companies update investors on how they’re doing, investors rejig their expectations. In Tesla’s case, investors were already anticipating record quarterly revenue – likely since the company had hinted at hitting production milestones. But the early update, with revenue figures even better than expected, encouraged investors to open those falcon-wing doors further and buy up yet more of Tesla’s stock. Everyone loves a new car smell…

Originally posted as part of the Finimize daily email.

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